ps441-3 - LONDON SCHOOL OF ECONOMICS Leonardo Felli...

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LONDON SCHOOL OF ECONOMICS Leonardo Felli Department of Economics S.478; x7525 Assignment 3 Advanced Microeconomics 1. Ms. A’s monthly budget is entirely spent on apples and oranges. Here are her consumption patterns for two months: September October apple price 3 8 orange price 4 6 apple consumption 4 3 orange consumption 3 4 Is the consumption behaviour consistent with the utility maximization model? 2. Consider the following partial information about a consumer’s purchase. He con- sumes only two goods x and y . Year 1 Quantity Year 1 Price Year 2 Quantity Year 2 Price Good x 100 100 120 100 Good y 100 100 ? 80 Over what range of quantities of y consumed in year 2 would you conclude: (i) that the consumer is better off in year 1 than in year 2? (ii) that he/she is better off in year 2 than in 1? (iii) that his/her behaviour is inconsistent? (iv) that x is an inferior good for this consumer? 1
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3. The price of food rises by 10 % and income by 5 %. Is it correct to state that a
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